When playing at online casinos, you’ll have to submit KYC gambling documents to verify your account when you sign up with the site. KYC, or Know Your Customer is a procedure that sees the casino asking you to provide them with specific documents.
Players who don’t submit their KYC documents may face several penalties, including being unable to withdraw winnings. As a result, understanding KYC and what it is all about is essential. In this guide, we cover everything you need to know about this process, from how it works to why it’s in place.
Importance of KYC for Online Gambling Platforms
In 1970 the Bank Secrecy Act (BAS) was signed into legislation. Fifteen years later, under this same Act, casinos earned the designation of “financial institutions” because of the amounts of currency that passed through them daily. This new designation required casinos to comply with several regulations, including submitting Currency Transaction Reports (CTRs) for transactions exceeding $10,000. Additionally, they needed to comply with the KYC and AML regulations which all banks and other financial institutions were required to follow.
In saying this, it is essential to note that when we say “casino”, this applies to brick-and-mortar and online casinos and casino apps. However, only a handful of states in the US offer legal online casino gambling, with many others choosing only to provide sports betting online or staying away from gambling, be it online or in person, altogether.
Many states that opt not to offer gambling do so because of the risk of money laundering and fraud that typically accompanies gambling entities.
So, what makes KYC gambling protocol so important for online casinos to follow?
Since the online gambling market has the status of a “financial institution,” it automatically opens itself and those who utilize it up to several security risks. The Cybersecurity and Infrastructure Security Agency, or CISA, highlights several of these security risks, including:
Because of these risks and the dangers they pose to online gambling sites and their users, KYC gambling compliance is essential. The process requires online casino sites to thoroughly vet and identify all users who sign up with their platform and, in so doing, prevent money launderers from using the sites to launder the proceeds of a crime.
It is essential to note that online casino sites and apps caught not complying or lacking in their KYC or AML procedures can be fined or even shut down by the relevant federal agencies. In other words, KYC gambling practices are the law for all casinos. The IRS and FinCEN (Financial Crimes Enforcement Network) enforce and oversee that online gambling sites comply with KYC regulations.
What is KYC (Know Your Customer)?
KYC or Know Your Customer is a requirement imposed by law on any entity regarded as a financial institution, such as credit unions, banks, broker-dealers, wealth management companies, finance apps, and websites like Paysafecard, lenders, and online casinos.
These institutions use this policy to check the validity of their clients and verify their identities to assess the risk of forming a business relationship with them. Additionally, these processes are in place to fit with the anti-money laundering and counter-terrorism regulations, protecting the institution and the customers themselves.
KYC Process in Gambling
When a new user signs up with an online casino, the KYC process may seem like a simple step, where they must upload several documents to get verified. However, KYC in gambling has three components to its process that are at work behind the scenes. So, let’s look at what they are and how they work:
Component One: Customer Identification Program (CIP)
The first leg of the Know Your Customer process is the Customer Identification Program or CIP. Here the casino requests specific documents from you that identify you and verify that you are who you say you are.
When asking for your proof of identity, the casino may request that you submit copies of documents like your identity card, passport, or driver’s license.
The proof of address documents required by the casino is often accepted in the form of a utility bill in your name or bank statements that are less than three months old at the time of submission. In some cases, the online casino may accept a letter from a public servant addressed to you and sent to your address.
In some instances, as part of your identity verification, the casino may request something called a “Source of Funds/Wealth.” Here, you must submit a financial statement clarifying for the casino that the funds you are gambling with are your own and that you are practicing online gambling safety by staying within your means.
Component Two: Customer Due Diligence (CDD)
The next step in KYC for gambling is Customer Due Diligence or CDD. All financial institutions must perform this process. Here, they are required to conduct in-depth risk assessments of users and their transactions. Once this evaluation is complete, the online casino assigns a risk rating to each user. This rating outlines how frequently and how much the online casino will monitor the user’s account.
Simplified Due Diligence
An online casino automatically performs Simplified Due Diligence on every new user who opens an online casino account and makes a deposit. This check is standard for user accounts with an average to low value where the risk for fraud, money laundering, financial crimes, and terrorism is minimal. Typically, users who have signed up, deposited funds, and claimed their casino bonuses will have this check applied to them.
Customer Due Diligence
When a casino user reaches a specific number of deposits or withdrawals, the online casino performs a Customer Due Diligence check. This basic check requires the casino to perform identity verification and determine that you are who you claim to be. Here, the casino may ask for copies of your identity documents.
The casino will then complete another risk assessment based on your information. It is essential to note that your account will be locked until you provide the casino with the required documents. In other words, you won’t be able to deposit or withdraw funds or claim casino bonuses.
Enhanced Due Diligence
Players that casinos classify as high-risk players or those that the casino regards as having a high net worth are typically subject to Enhanced Due Diligence. Suppose you are a Politically Exposed Person (PEP), someone with a career in finance or at a brokerage or any other establishment known for excessive cash flow. In that case, you can also expect to undergo an EDD. This is because your profession puts you at a higher risk for fraud and money laundering.
VIP or high-roller players known for their high-value wagers will also undergo an EDD. Here, the casino will request you to submit your financial statements or Source of Wealth to ensure that the money you are using to gamble is your own and to see whether you pose a risk. Additionally, this allows the casino to ensure you are practicing responsible gambling and staying within your means.
Component Three: Continuous Monitoring (CM)
This final component of the KYC gambling process is the most vital part. Continuous monitoring works to reduce risk. By monitoring a user’s account, online casinos can quickly flag suspicious activity or transactions. When this happens, Suspicious Activities Reports (SARs) get handed over from the online casino to the authorities, like FinCEN (Financial Crimes Enforcement Network) and FATF (Financial Action Task Force), who can then take a closer look.
It is important to note that the KYC process doesn’t happen only once and never again. Instead, several things can cause the KYC process to activate. Some of these include:
Compliance with Data Protection Laws
At the forefront of the KYC gambling process is the identity verification of the players who sign up with these online gambling sites. Here, online casinos require players to submit documents of a personal nature, including copies of their IDs, passports, driver’s licenses, bank and other financial statements, and proof of address.
This is where confidentiality and information security come into play. Online gambling sites must protect the sensitive personal information submitted by their users and apply security measures to prevent data leaks and hacking. To ensure you are providing your data to a reputable source, we recommend signing up with casinos in possession of an online gambling license provided by a reputable gambling authority and meets the casino compliance regulations.
However, a comprehensive data collection, management, and storage strategy is a legal requirement that online casinos must follow. One such legislation governing this is the CLOUD Act of 2018, which covers details on access to personal data and its security. But keep in mind that overall, data protection policies vary from state to state according to state laws and regulations.
The Role of Technology in KYC
Technology has both a positive and an adverse effect on KYC gambling. Technological developments, like AI and machine learning, have allowed online casinos to develop tech that enables faster verification and apply algorithms that can more readily pinpoint unusual player activity or transactions and high-risk situations.
While high-risk players typically only have their accounts reviewed annually and low-risk players only every five years, maintaining a high standard of continuous monitoring becomes easier with the use of artificial intelligence and more definitive algorithms. This means online casinos can significantly reduce risk and offer secure online platforms for other players.
However, while technological advancements are helping online gambling sites streamline their KYC practices, this same tech is also assisting online criminals. As a result, KYC processes must always stay ahead of the game.
Benefits of KYC Gambling for Players
Know Your Customer policies have several benefits for online gamblers. While the submission of various documents may seem frustrating, they really are there to protect you. So, let’s look at some of the ways KYC in gambling is helpful to players:
Future Trends in KYC for Gambling
The best online casinos (you can find out how we rate them here) are available in only a handful of states. However, more states are looking to legalize online casino gaming, with both Kentucky and New York introducing bills unsuccessfully in 2022.
This growing interest in online casino gaming will most likely bring more stringent regulatory KYC requirements. But, while the compliance requirements may be increasing, so is the technology available to casinos. AI and efficient algorithms make it quicker and easier to complete verification checks, monitor players’ accounts and gambling activity and meet the KYC gambling policies.
KYC and Cryptocurrencies
While all regulated online casinos and gambling sites require players to submit KYC documents, so do many of the best offshore casinos. However, not all players are happy to oblige, as many feel this invades their privacy and would rather not give over such information.
Since cryptocurrency operates independently of financial institutions, it is not bound by KYC regulations. As a result, many players are heading to the best Bitcoin casinos. These no KYC casinos don’t require players to submit KYC documents of any kind and offer instant registration.
However, while these sites provide convenience, they don’t provide the protection for players that KYC-regulated sites do.
KYC in gambling serves several purposes. In addition to helping online casinos monitor suspicious activity and prevent illicit financial crimes, it helps these sites keep their players safe.
While submitting KYC documents can be frustrating, the Know Your Customer process is designed to also protect players visiting these sites. These policies help eradicate underage and problem gambling and offer secure and fun gambling platforms, ensuring that players always have the best online gambling experience.